Take-up reaches 1.2m sq ft while supply continues to fall and prime rents remain stable
As we have come to the halfway point in the year, transactional activity across the West End is showing tentative signs of recovery. Take-up in June reached 216,467 sq ft, across 24 transactions. This brought Q2 take-up to 625,821 sq ft, and although this was down 33% on the 10-year long-term average, this was up 9.6% from Q1 2021, and subsequently becomes the strongest quarter since Covid restrictions began in March 2020.
At the end of H1, take-up came to 1.2m sq ft, across 114 transactions. This is 20% up from June 2020, however, it is still important to note that this was still down by 39% on the average amount we have seen let over the H1 period over the past 10 years.
Only four transactions over 50,000 sq ft have completed so far this year, one of which occurred in June. This was Babylon Health’s acquisition of the 1st to 4th floors (63,580 sq ft), at 1 Knightsbridge Green, on a three-year lease, with the rent currently confidential. The second largest was Cinch Cars acquisition of the entire building (20,800 sq ft) at The Fjord building, N1, with all terms currently confidential.
Space under offer remained largely stable from the previous month, with the total reaching 1.07m sq ft. Space under offer in the development pipeline was up 42% from Q1 illustrating the strong demand for newly developed office space amongst office occupiers.
Further to this, we have seen a large number of office occupiers choosing to re-activate their searches, across central London and the West End this month. The total number of active requirements reached 5.57m sq ft in June, this is a 13% increase from the previous month, representing 82% of the long-term average.
Over half (55%) of these active requirements are sized 15,000 sq ft or less, and the largest business sector to account for these active requirements is the Professional sector with 28%.
Following on from May, the total level of available supply has also decreased further in June, reaching 7.8m sq ft, equating to a vacancy rate of 6.8%. The vacancy rate is now down 10 bps from the previous quarter but still up on the long term average of 4.5%.
Alongside this, the total amount of tenant supply has also decreased, as it stood at 2.66m sq ft at the end of June. This is a 4% decrease from May, and a 7% decrease from Q1, as we saw more occupiers withdrawing their space from the market.
As supply is showing signs of decreasing, we are yet to see any significant falls in headline rents across the West End. At the halfway point of this year, the average prime rent stands at £116.75 per sq ft. Although this is down on the previous quarter by 1.5%, it is up by 16.7% from this same point last year, as landlords continue to favour greater incentives by way of extended rent-free periods. The current average rent-free period stands at 26 months, having moved out by two months from the previous quarter, and out by six months from the five-year average.
Development activity still remains strong, and as pre-lets continue to be a key driver of leasing activity, 28% of the development pipeline has already been pre-let. This leaves around 8.97m sq ft of speculative space for delivery between 2021 and 2024.
Analysis close up
In Focus – The BREEAM rating
As we are seeing a global push towards a greener future, a buildings sustainability status has increasingly become more important to office occupiers. This can be illustrated from the leasing activity in 2021, as 45% of the transactions that have completed have been in buildings with a BREEAM rating of ‘Very Good’ or above. Furthermore, if we look back further and consider all transactions above 5,000 sq ft between 2018–2021, this number increases to 62%, the large majority (52%) of which were classed as ‘Excellent’ or ‘Outstanding’.
Similarly, this interest in the BREEAM rating of a building is shown through the number of pre-lets of future office developments. Between 2021–2022, 17% of new office schemes, that have targeted a BREEAM rating of ‘Excellent’ or above, have already been pre-let. This suggests that developers may aspire to make their buildings more green in a bid to make them more desirable.